HUGO BOSS considers collection risks, risks to the brand and corporate image, as well as investment risk to be among the material strategic risks.
Collection risks
Changing fashion and lifestyle trends can cause collection risks. Challenges in the collection development process above all involve recognizing trends in a timely manner as part of creative management and incorporating these as quickly as possible into commercially successful collections. Research and Development
Extensive analyses of relevant target groups and markets and of the successful sale of previous collections are intended to reduce collection risks. In addition, direct customer proximity in the Company’s own retail business, feedback from wholesale partners, the use of digital tools to identify trends in line with the strategic claim “Lead in Digital”, and insights from customer relationship management (CRM) enable changes in buying behavior to be identified at an early stage and taken into account accordingly in the development of future collections. In the course of the ongoing digitalization of the collection development process, HUGO BOSS is managing to further shorten lead times in order to respond even more quickly to global trends. Research and Development
The branding refresh being pushed as part of “CLAIM 5” includes the products and both brands’ logos. With the Spring/Summer 2022 collections of BOSS and HUGO, which have been available since early 2022, customers around the world are experiencing both brands with a completely new “look and feel” for the first time. Clear brand codes and design elements, among other characteristics, are intended to make both brands even more recognizable and to strengthen the more youthful, confident brand image. In this context, the Company is pursuing the clear ambition to establish BOSS as a true 24/7 lifestyle brand across all wearing occasions. As part of this, the Company intends to fully exploit the potential of casualwear in the future, while at the same time strengthening its important formalwear business. Equally important, HUGO is to be established as the first point of contact for younger customer groups. Group Strategy, “Product is King”
The potential negative impact from collection risks are considered to be high. Based on the risk mitigation measures implemented, however, Management considers the probability of occurrence to be unlikely.
Risks to the brand and corporate image
The occurrence of risks for the brand and corporate image can have a negative impact on the economic success of HUGO BOSS. For example, an inadequate quality of the products or services on offer in the own retail business, an uncontrolled pricing and markdown policy, the use of distribution channels that are damaging to the brand, an unattractive marketing mix, or non-compliance with laws or social standards could have a damaging impact on brand image.
As a consequence, protecting and maintaining the brand image has a high priority at HUGO BOSS. Ensuring a globally uniform brand and shopping experience, strict quality controls, a centrally managed pricing policy, the establishment of a seamless brand experience across all touchpoints as part of the strategic claim “Rebalance Omnichannel”, an active compliance management system, and exacting occupational and social standards contribute towards this target. In addition, legal trademark protection and the prosecution of product piracy are important efforts to secure the brand image.
The corporate image of HUGO BOSS is reflected in how it is perceived by its stakeholders. All communication activities are managed by the central departments Corporate Communication, Investor Relations, and Global Corporate Responsibility & Public Affairs. These are involved in continuous dialog with all important interest groups. Compliance with laws, standards and guidelines, both within the Group and by partners, is regularly verified. Management considers a negative impact on the brand and corporate image to be unlikely. The potential impact on the Group’s net assets, financial position and results of operations is considered to be significant.
Investment risks
The Group’s own retail activities are exposed to investment risks in connection with the modernization of the store network, selective of new store openings, as well as cross-channel integration and digitalization initiatives. The risk of bad investments refers in particular to investments in stores for which long-term rental agreements have been entered into, but which in retrospect fall short of the Company’s profitability targets. Bad investments can also result from the development and implementation of new store concepts and digital elements.
The risk in connection with impairment of property, plant and equipment, intangible assets, right-of-use assets at the level of the Group’s own retail stores, and goodwill represents the largest risk position within investment risks. In principle, it cannot be ruled out that a deterioration in the business outlooks or a change in the level of market rents may lead to an impairment of the Group’s assets. However, such an impairment would be non-cash in nature. For 2022, the Group considers the risk of significantly higher impairment losses to be unlikely, while having a significant financial impact. Notes to the Consolidated Financial Statements, Note 10
For major investment projects there is a specific approval process. Apart from qualitative analyses, for example with regard to potential locations of own stores, this also includes an analysis of each project’s net present value. Central investment controlling evaluates the planned investment projects with respect to their contribution to the Group’s profitability targets. In addition, subsequent analyses are conducted at regular intervals to verify the profitability of projects that have already been realized. Appropriate countermeasures are taken in the event of any negative deviations from the profitability targets originally set. The Group’s investment risk is considered to be unlikely in 2022 due to the measures implemented, with a potentially significant financial impact. Group Management